Income Tax

Fee for use of software taxable as Royalty

By TG Team Income Tax Judiciary September 5, 2011

TaxGuru Citation: 2011 taxguru.in 870
Case Name: ING Vysya Bank Ltd. Vs The Deputy Director of Income Tax (ITAT Bangalore)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2008- 09
Courts: ITAT Bangalore

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ING Vysya Bank Ltd. Vs The Deputy Director of Income Tax

Income-Tax Appellate Tribunal- Bangalore

I.T.A. No. 160(Bang.)/2010

(Assessment Year: 2008- 09)

ORDER

PER SMT P. MADHAVI DEVI, JM;

This is an appeal filed by the assessee and its directed against the order of the CIT(A)-IV, Bangalore, dated 30-11-2009 for the assessment year 2008-09. The assessee is aggrieved by the CIT(A) in considering the assessee as assessee is default u/s 201(1) of the Income-tax Act, 1961 on the ground that the assessee has failed to deduct tax at source u/s 195 of the Act on the payments made by it to ING Zurich for purchase of shrink wrapped software from outside India. The AO considered the said payment as royalty under the Act as well as the DTAA between India and Switzerland.

2. Brief facts of the case are that the assessee who is engaged in the business of banking in India had made certain remittances to M/s ING Vysya Bank N.V.Switzerland during the relevant financial year. From the perusal of the CA certificate, the AO noticed that such remittances were made towards purchase of software license and also that the assessee has not deducted tax at source on the said remittance under the plea that the payments are made toward purchase of software and the same are not liable to tax in India as per provisions of treaty laws and domestic laws. He, therefore, initiated proceedings u/s 20 1(1) of the Act on the Indian company and asked the assessee to submit the details. The assessee submitted that M/s ING Computer lease, Belgium (ICLB) entered into license agreement with m/s Oracle Netherlands B.V vide agreement dated 27-05-2004 as per which Oracle Netherlands BV has to sell the licenses to use the Oracle Data base software and performance of technical support services with whole ING group. As per the terms of the agreement, Oracle Netherlands would grant the license to ICLB as one time payment. Consequently, ICLB has entered into a sub licensing agreement with other ING associated companies vide agreement dated 27-09-2005 to provide the use of such license and the enjoyment of supplier related maintenance and support to the sub-licenses. As per the sub-license agreement, the sub licenses are required to pay one time charge for each sub license as calculated in sub-license sheet. The AO also observed that as per the invoice, the assessee has availed 39 CPU licenses and 320 Oracle Named User licenses which contain the oracle database software and other licenses and that also that the assessee has submitted that all these software have directly been downloaded from the website www. After considering the agreement and also the submission of the assessee with regard to the difference between CPU license and Named User Licenses and that the assessee has purchased the “shrink wrapped brand computer software” which is available off the shelf in the market, the AO held that as per the provisions of DTAA between India and Switzerland as well as the definition of “royalty” as per the Act, payment is in the nature of royalty and therefore, the assessee was required to deduct tax at source before making the remittances. Thus, the AO held that the assessee was an assessee in default u/s 201(1) of the Act and also levied interest u/s 201(1A) of the Act.